Frustrated by the lack of competition in the state's electricity market, the Maryland Public Service Commission is moving toward developing a safety net to protect consumers from price volatility when rate caps end, starting as early as next year.
The PSC wants to ensure that customers who do not choose an alternative supplier will continue to receive reliable electric service at stable and predictable prices. The Electric Restructuring Act of 2000 provides that the obligation of utility companies to provide such standard offer service (SOS) ends July 1, 2003. At that time, state law requires competitive bidding for SOS customers.
Utilities, suppliers, regulators and other interested parties have been negotiating since December to come up with rules and procedures to provide SOS, but no agreement has been reached.
At the end of a two-day hearing yesterday, PSC Chairwoman Catherine I. Riley warned that the commission was prepared to issue an order by the end of the year with or without a settlement.
"We do not have unlimited time for the parties to continue talking about a settlement without end," Riley said. "These things can't wait."
Maryland customers were allowed to switch to an alternative electricity supplier with the start of deregulation in the summer of 2000. In addition, rates charged by the state's utilities, including Baltimore Gas and Electric Co., were cut and frozen for a specified period.
As an additional protection for consumers in case adequate competition did not develop, the state legislature also gave the PSC the authority to order utilities such as BGE and Potomac Electric Power Co. to continue providing SOS after July 1, 2003.
Under that scenario, utilities would most likely solicit wholesale bids for power to supply their SOS customers. They also would be allowed to charge customers a market price that permits recovery of various costs to procure or produce the electricity, and a reasonable rate of return.
While almost all parties are in agreement on those points, details regarding contract length and pricing are up in the air.
The trick is in coming up with a plan that not only protects consumers from volatile prices, the parties said yesterday, but also permits an electricity market to develop.
If SOS rates are set too low, alternative electricity suppliers could have a difficult time offering competitive prices - a problem that suppliers said they have encountered with current price freeze rates.
"If the commission does not design SOS properly, suppliers will not be able to enter the market," said Thomas W. Kinnane, an attorney representing suppliers. "The inability of the market to develop will deprive customers of all sizes of choice and the opportunity to obtain services and pricing tailored to their specific needs."
Only 3 percent of eligible residential customers have switched to competitive suppliers, according to a filing from the Office of People's Counsel, which represents the interest of residential customers in utility issues. Few suppliers have made offers to residential customers, and even fewer are actively making offers, the office said.
An SOS plan must be in place before many commercial customers on the Eastern Shore lose their rate caps by July 2003. Eastern Shore residential customers face market pricing in 2004.
Rate caps also end for Pepco residential customers in 2004, followed by BGE's residential customers in 2006 and Allegheny Power's in 2008.
BGE's largest commercial and industrial customers began switching to alternative suppliers before their rate caps ended this summer.